The second option would best fit Sift's internal and external situation. The company is looking to expand and rebrand its business to generate more profit. Through this business plan, Sift would potentially receive approximately 1.3 million dollars for their net income in 2013. By having one central baking location and more storefront locations. The idea is that Sift would sell a larger amount of their product each year than they currently are because they would increase their number of customers through their multiple retail locations. Another advantage of building a commissary that provided all the baked goods for the storefront locations
Another advantage of building a commissary that provided all the baked goods for the storefront locations would be the cut in capital costs. Each location would not make their own specialty baked good products which would cut down the expensive costs of large baking equipment for each location. Rent expense would also be cheaper because less equipment would mean less space necessary to run the business. Rental space would only need to be big enough to decorate and display the cupcakes. Capital costs would be reduced due to this option.
A concern that might arise from this option could have an affect on the operational style of the business due to a lack of communication between employees. Sift has already begun to have an issue with "chain of command effective communication about processes" within their three store locations. (Page 307) With the addition of a commissary, four storefront locations, and two additional storefronts per year the number of employees will increase and possibly add to the already present communication problem. Effective management skills will be necessary if this option is chosen.
Sift wants to continue expanding multiple retail-only stores instead of baking stores. By adding five more business locations from this option within one year and two each year after Sift runs the risk of over expanding. Expansion is important but supply and demand should be a large factor in the company's expansion decisions. Expanding too rapidly may cause demand to decrease. Sift ended the fiscal year in 2010 with a net income of $137,078.67. (Page 310) The projected income statement under the second option predicts a net income of $81,725. (Page 311) From year 2010 to 2011 there will be a decrease in net income if this option is selected. In 2012, there will be a 107% increase in net income. By selecting this option, Sift has to be willing to financially take a cut in net income the first year of expansion and then wait for the increase in their net income the second year after expansion.
Overall, the second option will generate the highest amount of net income by year 2013 and will require the lowest amount of capital costs. By having multiple retail locations, Sift will increase their number of customers and the overall revenue of the company will rise.
To stay in business I would recommend that Sift secure the $340,000 loan, because they have maxed out their line of credit and do not have additional cash saved. To keep their business running they need cash to support themselves. Another recommendation I would suggest, is to improve Sift's internal communication between employees and managers. To be a successful business everyone must cooperate and perform their role well by establishing a chain of command. An inventive and less expensive way to expand Sift's customer base is through a "mail-order division." (Page 312) A larger number of customers could be reached through this business plan leading to an increase in sales.